Experiencing a recession is not necessarily a reason to stop investing in mutual funds. As with other investments, there are many types of mutual funds to invest in, such as stocks, bonds, and money markets. There are different risks and rewards associated with each mutual fund. Generally, the greater the potential for return, the greater the risk of loss. Rather than solely focusing on the state of the economy to decide whether mutual fund investing is sensible or not, it may be more helpful to concentrate on the long-term financial strategy you have in place.

After a review of your portfolio, you may find that a recession makes it necessary to shift, buy, or sell your current stock holdings. If this is the case, money markets and bond funds may be two options to consider. Money markets are short-term investments that, for the most part, are priced at $1 per share. Historically, bond funds have proven to be relatively sound investments during weak economies.

Within the bond fund sector, there are several to choose from, such as:

--          United States (U.S.) Treasury. U.S. Treasury bonds are considered one of the safest types because they are backed by the full faith and credit of the U.S. government. This decreases the risk of default and provides protection of principal.

--          Municipal. Municipal bonds are issued by state and local governments and are considered slightly more risky than U.S. Treasury bonds, but overall a prudent investment.

--          Corporate. Corporate bonds are an example of those that have the potential for high return as well as high potential for loss.

--          Mortgage. Like U.S. Treasury bonds, Mortgage bonds that are secured by the Government National Mortgage Association (GNMA, also known as Ginnie Mae), are also backed by the U.S. government. They invest in mortgages that are guaranteed by federal housing agencies like the Federal Housing Administration (FHA) and the Rural Housing Service (RHS).